UK parliament report calls for ETS overhaul

The EU’s emissions trading scheme (ETS) urgently needs a short-term solution to the low carbon price and a long-term redesign to deal with future fluctuations, according to a report released on Thursday (26 January) by the UK parliament’s energy and climate change committee.

The price of carbon to in the ETS has sunk to around €7 per tonne of CO2 because of the slowdown caused by the economic crisis. It was expected to be around €25 at this point.

The report criticises the UK’s ‘go-it-alone’ approach to solving the problem by setting a unilateral carbon price floor of £16 (€19) to begin in April 2013. A top-up tax will be charged on UK-based CO2 emitters to make up the difference between the carbon price and the floor.

The report says at the current carbon price, this would cost UK companies £10 per tonne more than other European industries are paying, which would “reduce the efficiency of the EU ETS at the expense of UK taxpayers” and raises the prospect of “our electricity producers and other businesses relocating to other countries”.

The parliamentarians say that instead the UK should work to fix the ETS system. The overall ETS cap should be toughened to deliver a 30% emissions reduction target by 2020, they say, with a long-term emissions trajectory set at a 60-80% reduction in emissions by 2050. In the short term the EU must set aside a significant number of EU allowances in order to raise the price.

Last month MEPs in the European Parliament’s environment committee voted to recommend a set-aside of 1.4 billion carbon allowances in the next phase of the ETS, which lasts from 2013 to 2020.